TAX BREAKS AFTER HURRICANE SANDY

While many of us have been consumed by news of the 2012 election, we're all sobered by the devastation of Hurricane Sandy. If you plan to help out, keep in mind some of these tips for making the most of your storm relief donations.
 

~You can deduct up to 50% of your adjusted gross income for cash gifts to "501(c)(3) organizations" or public charities working on behalf of storm victims. 

~If you give more than $250, you'll need a written receipt dated no later than the filing date of your return.
~Gifts of clothing, furniture, electronics, and household items are deductible at fair-market value, such as the price they would bring at a resale shop. Consider buying software, available at any office-supply store, for tracking your gifts and their value. You might be surprised how much you save!

~Congress and the IRS have cracked down on inflated car and truck deductions. If you give away a vehicle, you can deduct its fair market value only if the charity uses it for "exempt" purposes (such as a church using a van to drive parishioners). If the charity sells the vehicle, your deduction is limited to the charity's actual proceeds. If you claim more than $500, you'll generally have to attach a certification to your return that states the vehicle was sold in an arm's-length sale and includes the gross proceeds from the sale.

The IRS cautions all of us to seek out qualified charities, and warns of unscrupulous operators looking to take advantage of our generosity during a time of crisis. The IRS has also issued Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, for those who want to contribute or form a new charity.  

 

TIPS FOR FILING HURRICANE SANDY DAMAGE CLAIMS

Because so many consumers experienced claims problems in the wake of Hurricane Katrina and Irene, the CFA urges homeowners dealing with losses caused by Hurricane Sandy to be vigilant with their insurance companies to ensure that that they receive a full and fair settlement.

As consumers prepare to contact their insurance companies in the wake of the storm, the CFA offers the following tips:

AFTER THE STORM

1.     Report your claim as promptly as possible as insurance companies generally handle them first come, first serve.

2.     Once your claim is reported, be sure to get your claim number and write it down. Insurance company claims departments can locate your file easiest by your claim number.

3.     When the insurance company sends out an adjuster to survey your damage, ask if he/she is an employee of the insurance company or an independent adjuster (I.A.) hired by them. If an independent adjuster, try to secure the name of the actual company adjuster that the I.A. is sending your information to or are they authorized to make claim decisions and payments on behalf of your insurance company. 

KEEP GOOD RECORDS—Documentation, Documentation

1.   Start a notebook documenting contacts with your insurance company. List the date, time and a brief description of the exchange.

2.   Inventory your damaged possessions.

3.   Obtain a repair estimate from a trusted local contractor. Keep receipts from emergency repairs and any costs you incur in temporary housing. This may be reimbursable under the "Additional Living Expense" portion of your homeowners' policy. 

IF THE CLAIM IS DENIED OR THE OFFER IS TOO LOW

Demand that the company identify the language in your homeowners' policy that served as the basis for denying your claim or offering so little.

HOW/WHERE DO I COMPLAIN

1.  Complain to more senior staff in the insurance company

2.  Complain to your state insurance department.

                3.  See a lawyer.

WHAT ISN'T COVERED IN THE HOMEOWNERS' POLICY?

Homeowners' policies do not cover flood, earthquake, tree removal (except when the tree damages the house) or food spoilage from power failures. Some insurers use an "anti-concurrent-causation" clause in their policies that, insurers allege, removes coverage for wind damage if a flood happens at about the same time. 

For more information contact the Consumer Federation of America.

WHY I WILL VOTE FOR ROMNEY

A piece of advice my father once gave me was never talk about religion and politics. Later, after I was married he added, "Don't talk about ex-girlfriends in front of your wife." I guess this time I am not going to take my father’s advice.  Maybe I should write a book and call it ‘Advice and Dreams of My Father.’

In my opinion, this is a very important presidential election.  It is a clear choice between government and private enterprise.  My reasons have nothing to do with all those emails I have received about Obama's religion; Reverend Wright, birth certificate, college grades, Chicago politics and on and on and on.  My vote is based on who can run the country best.

Here is my rational

BRINGING THE COUNTRY AND CONGRESS TOGETHER

To correct the economy and for Government to work there must be a compromise between Republicans and Democrats. It appears to me that Romney wins this point.  He has demonstrated his ability as Governor of Massachusetts and he said in the debates that he realizes the importance of compromise.

Obama on the other hand does not seem to be able to bring the parties and Congress together.  He has had four years and we can see the divide. Recently, I was in Washington D.C. and a lobbyist that had been a democratic senator during Bush senior’s presidency said that while he was a senator the Republicans and Democrats would pose in front of the cameras to appease their constituents but the compromise would go on behind the scenes.  If the parties did not get together then the president would work the phones.  He then said "President Obama’s phone has cobwebs." 

My final decision on this point is based on the comments of the famous Washington columnist Bob Woodward in his book The Power of Politics.  Mr. Woodward, who is famous for his reporting of Nixon and Watergate, said that early in Obama's presidency when he was working on this health proposal and then later, and more importantly, when we came close to closing on the government because of reaching the debt maximum, Obama completely shutout any compromise.  It had to be done his way.

Winner - Romney

INCOME TAXES

This is an area of my expertise.  There is no question that our tax system is way too complicated and that much needs to be done to simplify and also make the system fair.  When 47% of the citizens do not pay tax they don't pay attention to what the government spends money on.  That is wrong.  Also, and just as important, we need the tax system to be stable.  This year we have to look at three different options for our clients due to the uncertainty of the 2013 tax rates and the Obamacare taxes.  We need a stable tax code that people can count on.

I also know that high taxes stifle growth.  Every week I talk with several clients that are concerned about how potential taxes will impact them.  I have heard clients say that they are not hiring to keep under the 50 employee Obamacare number.

High tax rates definitely serve as a deterrent to economic growth and employment.  Let me give you an example.  Lets first assume that I am making $250,000 per year so I am in a 58.15% bracket (40% federal, .9% and 3.8% Obama Care Tax, 2.45% Medicare tax and 8% state tax plus another 3% because my income is at a level that I lose some of my personal exemptions and itemized deductions).  Let’s say I have the opportunity to speak at a conference on a Sunday and Monday.  I have to leave on Saturday and return on Tuesday.  For this effort I would receive $2,000 net after expenses.  But wait... I would have to give the government $1,163 which would leave me with $837.  Here is the kicker.  If I am making $250,000 I don't really need $837.  It certainly is not worth it to give up a weekend, be away from my family and have to put up with the stress of travel.  But… speaking at conferences is where we attract new business.  If I am giving over 50% to the government, I am not really interested in working harder for 41.85%.  So if I am not interested in growing my business, I don't need to hire more people.

I was around in the late 1970's when Carter was president and you could be in a bracket as high as 84%!  I saw people and businesses cut back because the after tax reward was a disincentive.

Winner - Romney

IT'S THE ECONOMY STUPID

The above was a popular quote when Clinton was campaigning against then President Bush.  I think it is more important today then back then.  Every day for the past two years our federal government has borrowed over $3.5 billion dollars. Every day!   Let me put that in perspective.  To count that far would take you over 111 years nonstop.  Or to put it another way, if you made $1,000,000 per day, after taxes it would take you close to 10 years to have $3.5 billing dollars. We are borrowing every day and there seems to be no end in sight under Obama.

Romney is a businessman and he has experience turning around a business and the Olympics.  He has a much better resume to fix the problem than Obama. 

Winner - Romney

THE DIRECTION OF OUR ECONOMIC CLIMATE AND FUTURE

I cannot say it any better than the Creighton University economics professor Dr. Earnie Gross. 

U.S. economic competitiveness is in decline. Since 2009, the U.S. ranking has dropped from number 15 to 19 of the 144 nations evaluated by the Fraser Institute. The primary factor damaging the U.S. ranking was the escalating size of the federal government with U.S. federal spending as a percent of the nation's gross domestic product (GDP) climbing from 21.8 percent in 2008 to 24.1 percent in 2012. 

Moreover, between 2008 and 2012, overall private employment declined by 2.5 percent while federal employment increased by 1.2 percent. As the size of the federal government rose, the national debt soared from $9.4 trillion in 2008 to $15.9 trillion in 2012, advancing by about 70 percent as the overall economy expanded by only 9 percent. 

As a result of the massive U.S. debt, Standard and Poor's downgraded U.S. bonds in 2011. But the U.S. Federal Reserve has delayed the "debtageddon" by buying U.S. debt and effectively turning on the dollar printing presses and risking rampant inflation in the years ahead. Moreover, global investors, afraid to invest in stocks, have put their funds in U.S. bonds driving rates lower even with downgrades and the cheaper dollar. 

However, with 300,000 baby boomers retiring each month pushing social security spending and Medicare outlays higher, there will be a day of reckoning for the U.S. taxpayer and bond investor, but no economist knows when that is. However, the sure signal is when bond investors begin abandoning (selling) U.S. debt. This action will send the yield on the 10-year U.S. Treasury bonds skyrocketing. How high could they go? Today's rate of 1.7 percent will surely bounce to something approaching Spain's current 6-7 percent. This will mean more and more federal tax collections will be devoted to the payment of interest.

This has to turn around.  This has happened under the Bush Obama presidencies and Obama has not only NOT fixed the problem, he has made it worse.

Winner – Romney

In summary, without a strong economy eventually everything will suffer.  Changes need to be made now to fix the problem.  If not, we may be looking for Ann Rand’s John Galt. 

 

 

EMBEZZLEMENT #2

A couple of weeks ago I sent out a copy of an embezzlement that was reported.  Here is a second one.  If you don’t think this could happen in your business you are thinking just like the owners of these two businesses. 

Watch for our upcoming “Red Flag Training” webinar on how to spot and to stop employee theft.

STORE MANAGER PLEADS GUILTY TO EMBEZZLING

A former Plattsmouth, Nebraska convenience store manager pleaded guilty Monday in Cass County District Court to stealing $264,000 from his employer. 

The 56 year-old man faces one to 20 years in prison for stealing the money in small amounts between July 2007 and November 2011 from the former Lucky’s convenience store.  In exchange for his plea, prosecutors dropped a felony charge of misrepresenting sales tax collections.

The Cass County Attorney said the man admitted to investigators that he had taken the money. According to an affidavit filed by an U.S. Secret Service agent, the man said he stole the money by falsifying daily reports to make it seem the store did less business than it actually had.

FEDS NEED 18 PAGES TO DEFINE 'FULL-TIME' FOR OBAMACARE

The IRS just issued regulations on who is considered a “full time employee” for the Patient Protection Act. Is it any surprise that it took over 18 pages for a law that was over 2,700 pages?

FEDS FILE SUIT AGAINST THREE COMPANIES OVER ALLEGED MORTGAGE SCAM

Watch out for mortgage scammers! Just like with the scammers who promise to help settle IRS tax bills for pennies on the dollar, there are crooks willing to exploit homeowners with mortgage problems. Check out the article:
Feds file suit against 3 companies over alleged mortgage scam

SOCIAL SECURITY NEEDS MORE THAN JUST A 'TWEAK'

Below is an article that digs into the changes that need to be made to salvage the Social Security system.  Click on the link to read the article:

Social Security Needs More Than Just a 'Tweak,' Mr. President - The understatement of the past two centuries.

RED FLAG TRAINING

It seems that we are seeing more employee embezzlement all the time.  If you read the articles, the owner usually says “I would have never thought that this long time employee would have stolen from me."  There are some signs that you can look for to spot fraud and there are some systems that you can put in place to keep employees honest.  In November we are going to be doing a webinar which we call “Red Flag Training” which will discuss these issues.

The following article is an example out of a local newspaper:

A Lincoln woman pleaded no contest to theft by deception for embezzling from a marketing firm she helped found in 2002.  The employee stole $154,937 from a marketing firm between July 2006 and March 19, 2009 according to the Deputy County Attorney.   She said the woman who took care of the company's finances used bookkeeping software to write herself checks and make it look as if they were going to creditors.  The company's president was a co-worker of the woman for nearly ten years. He discovered the loss when he began to take control of the company's finances.

The Lincoln woman is set for sentencing on the felony charge.

INEPTOCRACY

I couldn’t find it in the dictionary, so I Googled it, and discovered it is a recently "coined" new word.

Read this one over slowly and absorb the facts that are within this definition!

I love this word, and believe that it will soon become a fully recognized English word. At last, we have a word to perfectly describe our current political situation......

INEPTOCRACY

(in-ep-toc'-ra-cy)- a system of government where the least capable to lead are elected by the least capable of producing and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

BOOTH RENTAL/INDEPENDENT CONTRACTOR

Q: My daughter-in-law recently attended a seminar at the Peel’s Show in IA where you talked about the IRS and Beauty Salons.  She came away with some information (or her interpretation of same) that has me somewhat confused.  Can you answer the following two questions for me to help clarify her understanding?

We have a Booth Rental-Independent Contractor Agreement that we purchased some time ago to be used in the Beauty Salon Business. With this agreement we allow our stylists to schedule their own time.  We want to be sure that the information we fill in on these contracts does not in any way jeopardize the relationship we have with our stylists. The stylists pay us a rent check.  However, the newer stylists would prefer their rent be a percentage of their sales, as opposed to a flat fee.  We want to be sure there is no problem with doing that.

(1) When having a stylist sign a Booth Rental/Independent Contractor Agreement, is it possible to have a % of the business the stylist does during the week be the Booth Rental amount, or is it required that this be a specific figure?

(2) When having a stylist sign that same Booth Rental/Independent Contractor Agreement is it possible to require a certain number of minimum hours to be spent at the salon without jeopardizing the integrity of the agreement, i.e. maintaining the Independent Contractor status for the stylist?

Obviously, we want to be sure we are following the correct procedures to stay within IRS guidelines, so answers to these questions will allow us to determine our direction with any stylists we retain.  Thanks in advance for any clarification you can provide.

A: Great questions!  When IRS or Department of Labor looks at a worker, they apply common law principles.  What this means is based on the “facts and circumstances” does the owner have so much control over this person that it makes the person an employee.  The main factors are:

·         The degree of control

·         The workers investment

·         The workers opportunity for profit or loss

·         Can the worker be discharged

·         Is the worker part of the regular business

·         The permanence of the relationship

·         What relationship did they think they were creating

There are several cases where the courts have ruled on worker versus independent contractor.  In all the cases except one when the worker paid rent based on a percent of income that person was determined to be an employee. 

Here is information from the IRS Audit Guide of Salons:

Revenue Rulings and Court Cases

The following revenue rulings and court cases address the employee vs. independent contractor issue:

Revenue Ruling 57-110, 1957-1 C.B. 329
Facts: Fixed weekly fee; owner furnished heat, light, water and supplies; barber provides own tools; barber sets own hours of work; and barber collects his own money and does not account to the salon owner for revenue earned. Determination: Independent contractor
Revenue Ruling 70-488, 1970-2 C.B. 219
Facts: Barber is paid a percentage of the money from services performed; salon sets hours of work; required to wear a uniform. Determination: Employee
Revenue Ruling 73-591, 1973-2 C.B. 337
Facts: Salon agrees to furnish, repair, and maintain all equipment; hair stylist is paid on a percentage of gross receipts; no credit work or free work can be done without the approval of the salon owner; working hours are set; hair stylist furnished a report each day to the owner reflecting the day's receipts. Determination: Employee
Revenue Ruling 73-592, 1973-2 C.B. 338
Facts: Rents for a fixed monthly fee; the salon furnished heat, light, water, and supplies, hair stylist retains the money collected; hair stylist sets own hours of work. Determination: Independent Contractor
Wolfe v. United States, 77-1 U.S.T.C ¶ 9346 (D.N.D. 1977)
Facts: Hair stylists are paid on a percentage of gross receipts; hair stylists handle own clients; hair stylists provide own supplies; appointments are made through one receptionist; hair stylists set their own hours and have their own keys to the shop; money from services is paid to the salon; hair stylist decides what prices to charge; hair stylists are responsible for bounced checks; and hair stylist are not required to work on salon's customers. Decision: Employee
A Henry, d.b.a Center Beauty Shop, 78-1 U.S.T.C. ¶ 9433 (E.D. Tenn 1978)
Facts: Rent is based on a percentage of gross receipts; no receptionist; anyone in the salon will answer the phone; salon furnishes the supplies; hair stylists collect own money; hair stylists set own hours of work; prices were set by an agreement among the hair stylist; and minimum rent payment is $50. Determination: Independent Contractor

Following is Tax Management's summary of the issue based on revenue rulings and court cases.
"… the one factor which appears to hold overriding persuasive value in the case of hair stylists is the nature of the remuneration under the agreement between the hair stylist and the shop owner… the factors tending to show an employee relationship seemed to predominate over independent contractor type factors in those situations where the remuneration is based on a percentage of earnings, whereas the opposite is true in those situations where the hair stylists rents the chair for a fixed monthly fee."

I hope that this is helpful.

Larry Kopsa CPA

90 DAYS AWAY: FEDERAL TAX HIKE WILL AVERAGE $3,500 PER HOUSEHOLD, STUDY FINDS

The impending "fiscal cliff" continues to dominate the political news media. The AP reports that unless Congress and President Obama agree to change current law, "a typical middle-income family making $40,000 to $64,000 a year could see its taxes go up by $2,000 next year." A new report by the Tax Policy Center finds that nine out of 10 households would be affected by the expiration of current tax rates -- although the top 20% of earners would bear 60% of the overall cost. Across all households, the tax increases would average almost $3,500, according to the study. The AP notes that "economists warn the looming tax hikes, combined with $109 billion in automatic spending cuts scheduled to take effect in January, could throw the fragile economy back into recession."

PENALTY FOR FILING LATE BUSINESS RETURN

Q: I am late filing my business return.  What is the penalty?

A: The penalty for a late 1120S & 1065 is $195 for each month multiplied by number of shareholders.  So, if there are 5 partners or shareholders and the tax return is 6 months and a day late the penalty is $6,825 (5 partners x $195.00 x 7 months).  Why 7 months you may ask?  One day over counts as a full month.

ASSOCIATED HAIR PROFESSIONALS

We understand dealing in niches as our salon and spa team, here at Kopsa Otte, deals 100% in this niche. By doing this our knowledge and understanding of the industry assists our clients in all aspects of their business. At a hair show this summer, we had the pleasure of meeting Jenny Flanagan, with Associated Hair Professionals (AHP). Jenny also deals in this niche and we want to share with you information about AHP. 

AHP is a national association dedicated to supporting individual hairstylists, barbers, and nail professionals with business resources, marketing materials, liability insurance, and community.

Included in membership for $179/year:

·         Marketing resources to help you get the word out about your business. You’ll receive a free website builder with templates and hosting, a free email address, access to articles about marketing best practices, and discounted printing on marketing materials.

·         Discounts on products and services that help you succeed. Save money on industry magazines, cell phone service, computers, office supplies, online scheduling, and more, with new discounts constantly being added.

·         Liability insurance coverage to protect you from sue-happy clients. We offer the highest aggregate coverages available—$2 million per incident and $6 million total per policy year. You invested time and money in your business. Why put your present and future earnings at risk?

Visit www.Insuringstyle.com to complete an online application, or call 800-575-4642 to join.

THE IMPORTANCE OF ACCOUNTANTS MENTIONED IN THE PRESIDENTIAL DEBATE

Finally us accountants are getting the respect we deserve.  President Barack Obama and Republican presidential nominee Mitt Romney traded barbs about tax policy and how they would control the budget deficit, with Romney telling Obama at one point that he might need to get a new accountant.

Later Obama said he wanted to end corporate tax breaks for companies that ship jobs overseas, Romney responded, “You said you get a deduction for taking a plant overseas. Look, I've been in business for 25 years. I have no idea what you’re talking about. I maybe need to get a new accountant.”  I wonder what the country's financial situation would be like if us accountants ran the country?

5 TIPS ON GAMBLING INCOME AND LOSSES

Do you bet on the ponies, play cards or enjoy slot machines, then you should know that as a casual gambler, your gambling winnings are fully taxable and must be reported on your income tax return. You can also deduct your gambling losses…but only up to the extent of your winnings.

Here are 5 important tips about gambling and taxes:

1. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and the fair market value of prizes such as cars and trips.

2. If you receive a certain amount of gambling winnings or if you have any winnings that are subject to federal tax withholding, the payer is required to issue you a Form W-2G, Certain Gambling Winnings. The payer must give you a W-2G if you receive:

• $1,200 or more in gambling winnings from bingo or slot machines;
• $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno;
• More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament;
• $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager; or
• Any other gambling winnings subject to federal income tax withholding.

3. Generally, you report all gambling winnings on the “Other income” line of Form 1040, U.S. Federal Income Tax Return.

4. You can claim your gambling losses up to the amount of your winnings on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions.' You must report the full amount of your winnings as income and claim your allowable losses separately. You cannot reduce your gambling winnings by your gambling losses and report the difference. Your records should also show your winnings separately from your losses.

5. Keep accurate records. If you are going to deduct gambling losses, you must have receipts, tickets, statements and documentation such as a diary or similar record of your losses and winnings.